7 ways in Tax planning to save Taxes without any Investment
In Tax planning, your main focus is to save Taxes as much as possible; so there are schemes which claim that it can save your tax and also grow your capital. The majority of these investment schemes are covered in Section 80C of Income Tax Act. But there is a possibility that you are spending money throughout the year that has some portion which is covered in Exemptions or Deductions. For that you just need to identify and claim that spending in during your Income Tax Return (ITR) filing. There are 8 ways (mostly missed by Tax payers) when you don’t have to do any investment consciously but you can claim it, if it falls in your case. Let’s discuss that 8 ways in detail-
- HRA: It is House Rent Allowance i.e. the allowance against the rent which you pay, it is provided by your employer. Many companies include HRA in their employee’s salary structure but some companies/organizations do not include it. So employee has to define it at the time of filing ITR. For Salaried employees, HRA is defined in section 10(13A); according to this, a salaried employee can claim HRA minimum of – (1) Actual HRA; (2) 50% of Basic for metro cities or 40% (for non-metro cities); (3) Rent minus 10% of Basic salary. From these 3 whichever is less you can claim it as HRA for tax deduction. For example- Let’s say your salary is Rs. 50000, basic salary is Rs. 15000, HRA is Rs. 8000 and your rent in non-metro city is Rs. 10000. So in 3 scenarios your – (1) Actual HRA is Rs. 8000; (2) 40% of Basic salary i.e. 40% of 15000 is Rs. 6000 (3) Rent – 10% of Basic salary is 10000 – 1500 = Rs. 8500. In this case HRA of second case Rs. 6000 is consider for tax deduction as it minimum of the three, it is monthly so annual will be 6000X12= Rs. 72000. You have to consider it, if you are paying the rent. For Non-Salaried or business owners, HRA is defined in Section 80GG. Here it is minimum of- (1) Rent-10% of income, (2) 25% of Income and (3) Rs. 5000 per month. So if you are business owner you can claim as per above criteria. In most cases the minimum comes out be Rs. 5000 per month as it is very less and other 2 generally comes higher.
- Children Tuition Fees: This can be claimed under our favorite Section 80C. Many people don’t claim it and do other investments under section 80C like ELSS, PPF etc. If you have children and you are paying their tuition fee in pre-school, school or college you can claim it under section 80C of limit Rs. 1.5 Lakh. It is valid upto 2 children. Let’s say if you are paying Rs. 5000 per month as your children tuition fees you can claim 5000X12 = Rs. 60000 under section 80C. If husband and wife both are working then they can claim for 4 children (if it is the case off course) but for same child either of husband or wife can claim, not both. Please note, it is only valid for children not for spouse education tuition fees.
- Registration and Stamp duty charges: If you have purchased any property in current financial year, so you have definitely paid the registration charges and stamp duty. Although registration charges and stamp duty varies from state to state in India. But it is around 7%, if you have purchased any property like your home, plot etc. you should claim it. It also falls under section 80C; for example in FY 2022-23 you have purchased your Home of Rs. 50 lakhs, so your registration charges and stamp duty would be come around – 7% of 50 lakhs = 3.5 lakhs and hence you can claim it under section 80C where it has the upper limit is Rs. 1.5 lakh but good thing is that you don’t have to invest anything for tax deduction under section 80C. This is also many tax payer missed to claim.
- Home Loan: If you have the Home loan; you can claim tax deduction on both Principle and Interest. Home loan Principle is claimed under Section 80C and Interest is claimed under Section 24 with maximum of Rs. 2 lakhs per financial year. So catch here is- you can either claim HRA or Home loan not both. But there is a case when you claim both- if you are living rented house in one city say in Mumbai and you own a house which is rented out in Delhi- here you can claim both HRA and Home loan, in case you have the Home loan whether you are living there or you have rented it. The interest component is claimed only for self occupied Home, not if you have rented it.
- Interest on Education Loan: It can be claimed under Section 80E, if you have education loan for higher education after 12th You can claim tax deduction for interest part of your education loan. There is no limit for this component, whatever interest comes in one financial year you can claim it. You can claim it maximum for 8 years from the year you have taken the loan. It can be claimed for Interest on education loan for self, spouse or children.
- Donations: It is covered under section 80G, you can claim it if you have done the donations to some prescribed organizations. It contains the religious institutes, Government relief funds, political parties, NGOs etc. In some cases it is 100% and in some cases it is 50% of the amount considered for Tax deduction. Check out which organizations are covered in Section 80G and according to it you can claim it.
- Medical Treatment (Not covered in Health Insurance): It is covered under section 80DD. In case, God forbid, any of your dependent has any disability and cost of treatment outside the Health Insurance can be claimed as per rules of disability of the dependent. Under section 80U, this is prescribed for disability of self. Under section 80DDB, you can claim prescribed chronic diseases treatment outside the Health Insurance upto Rs. 40000 (Rs. 60000 for senior citizens). If it is the case with you don’t forget to claim these deductions.
Final words: The above points are not any consciously done investments, they are expenses. If you have done it you should claim that. In most cases, people don’t claim it due lack of awareness. If you fall in any of the above case don’t forget to claim the Tax benefit.